The global financial market investment volatility that has hit hedge fund reinsurance firms returns in recent months have translated into a loss for the third-quarter at Bermuda-headquartered Third Point Re.
Third Point Re, backed by Daniel Loeb’s Third Point LLC hedge fund, has fallen to its worst single quarter loss in the company’s history, perhaps underlining just how difficult and volatile the investment environment has been for the hedge fund managers of this world.
The net loss reported for Q3 2015 was $195.7 million, or $1.88 per share, the biggest quarterly loss the firm has experienced. For the first nine months of 2015 Third Point Re has reported a net loss of $129.6 million, or $1.25 per share, which compared with net income of $65.1 million in the first nine months of 2014 shows just how bad the latest quarter has been.
Third Point Re was up at the end of the first-half, reporting positive net income of $66.1 million, so Q3’s investment performance has wiped that out completely. The investment loss is reported as $193.2 million, which added to a small underwriting loss as the combined ratio was 102.8% gives the net figure.
“During the third quarter, we were adversely affected by difficult market conditions that resulted in a net investment loss of $193.2 million in the quarter, representing an (8.7)% return in the quarter and a (4.3)% return for the year to date period. Based on our estimated investment return for October of 4.6%, as posted on our website, our investment return for the year through October was 0.1%,” commented John Berger, Chairman and Chief Executive Officer.
However, the underwriting business continues to make good progress, despite also falling to a small loss. The premiums written continue to rise rapidly, enabling Third Point Re to both put capacity to work as well as generate more investment float, which should help it to increase scale and relevance.
For these hedge fund strategy, or investment oriented, reinsurance firms, it is important to grow. The greater scale allows them to access more underwriting business, while more underwriting builds the investment pool of assets enabling the hedge fund strategy to return more, when it has a good quarter.
“In the third quarter, we generated premiums written of $205.6 million, an increase of 62.6%, bringing our gross premiums for the year to date period to $603.3 million. We completed a $91.6 million adverse development cover in the quarter which was the main driver of the premium increase as well as the largest contributor to growth in investment float which totaled $601.5 million as of September 30, 2015. Our underwriting results for the period were as expected, and we believe we are well positioned to take advantage of improvements in investment performance in future periods,” Berger continued.
For the third-quarter the investment return was -8.7% and for the first nine months of 2014 -4.3%.
Third Point Re explained; “The net investment results for the three and nine months ended September 30, 2015 were attributable to losses in the Company’s long equity portfolio, which was partially offset by strong performance in equity short positions, structured credit and sovereign credit. During the third quarter, the equity portfolio posted negative returns in most sectors amidst a broader market decline. Specifically, several large positions in the healthcare sector detracted meaningfully from investment returns. The returns generated by the Company’s investment portfolio will vary based on a number of factors, including the overall markets, individual security selection, and allocation of exposure by the investment manager across strategies.”
Third Point Re reversed the investment decline in October, achieving a positive return of 4.6% in October, which was sufficient to take its year-to-date investment return back to positive at 0.1%. If that can be continued through to the end of the year it would at least minimise the loss, perhaps even getting the full-year back to positive if performance was particularly strong.
On the wind-down of the catastrophe risk management unit and the insurance-linked securities (ILS) fund that Third Point Re manages, but is closing, net assets under management for the Third Point Reinsurance Opportunities Fund Ltd. dropped to $0.7 million as of September 30th 2015, compared to $119.7 million as of December 31st 2014, as the return of capital to investors continued.
Third Point Re reported that over the first nine months of 2015 it has distributed $118.7 million (Third Point Re’s share – $59.0 million) to investors in the catastrophe fund.
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